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Derivative Instruments and Hedging Activities | 9 Months Ended
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Sep. 30, 2018
Derivative Instruments And Hedging Activities Disclosure [Abstract] |
Derivative Instruments and Hedging Activities | 9. Derivative Instruments and Hedging Activities Schlumberger is exposed to market risks related to fluctuations in foreign currency exchange rates and interest rates. To mitigate these risks, Schlumberger utilizes derivative instruments. Schlumberger does not enter into derivative transactions for speculative purposes. Interest Rate Risk Schlumberger is subject to interest rate risk on its debt and its investment portfolio. Schlumberger maintains an interest rate risk management strategy that uses a mix of variable and fixed rate debt combined with its investment portfolio, and occasionally interest rate swaps, to mitigate the exposure to changes in interest rates. During 2013, Schlumberger entered into a cross-currency swap for a notional amount of €0.5 billion in order to hedge changes in the fair value of Schlumberger’s €0.5 billion 1.50% Guaranteed Notes due 2019. Under the terms of this swap, Schlumberger will receive interest at a fixed rate of 1.50% on the euro notional amount and pay interest at a floating rate of three-month LIBOR plus approximately 64 basis points on the US dollar notional amount. This cross-currency swap is designated as a fair value hedge of the underlying debt and is marked to market, with gains and losses recognized immediately in income to largely offset the effects on changes in the fair value of the hedged debt. During 2017, a Canadian dollar functional currency subsidiary of Schlumberger issued $1.1 billion of US dollar denominated debt. Schlumberger entered into cross-currency swaps for an aggregate notional amount of $1.1 billion in order to hedge changes in the fair value of its $0.5 billion 2.20% Senior Notes due 2020 and its $0.6 billion 2.65% Senior Notes due 2022. These cross-currency swaps effectively convert the US dollar notes to Canadian dollar denominated debt with fixed annual interest rates of 1.97% and 2.52%, respectively. These cross-currency swaps are designated as cash flow hedges. The changes in the fair values of the hedges are recorded on the Consolidated Balance Sheet and in Accumulated Other Comprehensive Loss. Amounts recorded in Accumulated Other Comprehensive Loss are reclassified to earnings in the same periods that the underlying hedged item is recognized in earnings. At September 30, 2018, Schlumberger had fixed rate debt aggregating $13.3 billion and variable rate debt aggregating $4.1 billion, after taking into account the effect of interest rate swaps. Short-term investments were $1.4 billion at September 30, 2018. The carrying value of these investments approximated fair value. Foreign Currency Exchange Rate Risk As a multinational company, Schlumberger conducts its business in more than 85 countries. Schlumberger’s functional currency is primarily the US dollar. However, outside the United States, a significant portion of Schlumberger’s expenses is incurred in foreign currencies. Therefore, when the US dollar weakens (strengthens) in relation to the foreign currencies of the countries in which Schlumberger conducts business, the US dollar-reported expenses will increase (decrease). Schlumberger is exposed to risks on future cash flows to the extent that the local currency is not the functional currency and expenses denominated in local currency are not equal to revenues denominated in local currency. Schlumberger is also exposed to risks on future cash flows relating to certain of its fixed rate debt denominated in currencies other than the functional currency. Schlumberger uses foreign currency forward contracts to provide a hedge against a portion of these cash flow risks. These contracts are accounted for as cash flow hedges, with the changes in the fair value of the hedge recorded on the Consolidated Balance Sheet and in Accumulated Other Comprehensive Loss. Amounts recorded in Accumulated Other Comprehensive Loss are reclassified into earnings in the same period or periods that the hedged item is recognized in earnings. At September 30, 2018, Schlumberger recognized a cumulative net $5 million loss in Accumulated Other Comprehensive Loss relating to revaluation of foreign currency forward contracts designated as cash flow hedges, the majority of which is expected to be reclassified into earnings within the next 12 months. Schlumberger is exposed to changes in the fair value of assets and liabilities that are denominated in currencies other than the functional currency. While Schlumberger uses foreign currency forward contracts and foreign currency options to economically hedge this exposure as it relates to certain currencies, these contracts are not designated as hedges for accounting purposes. Instead, the fair value of the contracts is recorded on the Consolidated Balance Sheet, and changes in the fair value are recognized in the Consolidated Statement of Income as are changes in fair value of the hedged item. At September 30, 2018, contracts were outstanding for the US dollar equivalent of $5.0 billion in various foreign currencies, of which $1.9 billion relates to hedges of debt denominated in currencies other than the functional currency. The effect of derivative instruments designated as fair value and cash flow hedges, and those not designated as hedges, on the Consolidated Statement of Income was as follows:
|  |  |  |  |  |  |  |  | (Stated in millions) |  |  |
| Gain (Loss) Recognized in Income |  |  |
| Third Quarter |  |  | Nine Months |  |  |
| 2018 |  |  | 2017 |  |  | 2018 |  |  | 2017 |  |  | Consolidated Statement of Income Classification
Derivatives designated as fair value hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cross currency swap | $ | 6 |  |  | $ | 19 |  |  | $ | (6 | ) |  | $ | 66 |  |  | Interest expense
Derivatives designated as cash flow hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts | $ | (2 | ) |  | $ | - |  |  | $ | 3 |  |  | $ | - |  |  | Cost of services/sales
Cross currency swap |  | (30 | ) |  |  | - |  |  |  | 25 |  |  |  | - |  |  | Interest expense
| $ | (32 | ) |  | $ | - |  |  | $ | 28 |  |  | $ | - |  |  |
Derivatives not designated as hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts | $ | (17 | ) |  | $ | (10 | ) |  | $ | 15 |  |  | $ | (3 | ) |  | Cost of services/sales

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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